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Arabica coffee futures fell Thursday on liquidation ahead of the first notice day for the September position, and speculative selling. The market fell through the recent support levels attracting new short players. Prices have failed below the 60-day moving average and now are poised to test July’s lows. A stronger dollar added pressure on the prices. The benchmark contract for September delivery lost 250 points to end at 128.45 cents a pound. The outlook for the Brazil crop has improved recently, with beneficial climate which has contributed to accelerate the progress of the harvest. The latest survey from Safras and Mercado, a well-respected Brazilian agribusiness consultant firm, showed that as of August 15th, the 2017-2018 crop was 91% harvested, up 5% from last week. This is faster than last year same date, when harvest was 86% completed and above the five-year average of 87%. The International Coffee Organization raised forecast for the 2016-17 world production to a record of 153.9 million 60-kilo bags, from previous estimate of 151.6 million.
London failed to track further weakness in New York, with the formation of a Doji Star suggesting that negative momentum is stalling, at least in the short term. A move through yesterday’s low attracted only minor technical selling which was comfortably absorbed by resting commercial buy orders under the market. A convincing settlement below $2050 basis Nov17 is required by technicians in order for this recent downtrend to continue, having found support at this level for three consecutive sessions. The structure held firm once more with the Sep/Nov strengthening to $9 premium through 4000 lots whilst 2800 of Nov/Jan traded out to $21 premium. Good volumes of Nov17 based options traded on both sides of the market and participants will closely monitor the buildup of exposure in November following the expiration of September based options yesterday.
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Arabica Coffee Futures settled lower for the third consecutive session, with the active contract for December delivery losing 1.05 cents at 134.50 cents per pound. Overnight buying helped prices gap upwards at the opening, reaching early highs before trading lower throughout the session. Prices found support near the lows of the second half of July and the 50-day moving average. Volume remained high, trading 49,588 lots. Open interest continued declining by 3,842 lots, approaching FND August 23rd. In macroeconomic news, FOMC minutes revealed that several Fed policymakers were prepared to announce a start date for the shrinking of the US central bank’s balance sheet at the latest rate-setting meeting, but most preferred to wait for additional information on the economic outlook and developments potentially affecting financial markets. The dollar dropped after the close, reversing intraday gains.
London maintained its recent negative trajectory to close lower for the third consecutive session and print lows last seen in mid-June. Outright values consolidated higher through early trading, supported by the continued absence of origin selling within this recent move lower. The test to the upside proved to be short lived, however, as a fresh bout of technical selling re-entered into London as values moved through yesterday’s low at $2050 basis Nov17. Commercial buying retuned towards the lower realms of the daily range to absorb much of the negative momentum. The nearby structure defied the flat price weakness to strengthen throughout; the Sep/Nov switch trading into $7 premium through 4000 lots whilst the Nov/Jan strengthened back to $20 premium. September options expired with an anchor price of $2075 whilst good volumes were traded further down the board; 1375 lots of Nov 2300/2050 fence traded at $52 with a 59% delta at $2075. Arabica coffee futures fell Tuesday, with the active December contract losing 4.95 cents or 3.52% at 135.55 cents per pound. The strength of the dollar put pressure on the commodity complex. Volume increased to 60,697 lots. The OI continued to decrease, dropping 2,825 to 195,404 lots on Monday. Since July 25 the OI has decreased 28,090 lots, initially due to short-covering and recently because of the usual off-setting of contracts ahead of the delivery period. September FND is August 23. The dollar was helped by the fading of the tensions between US and North Korea. The dollar rose 0.5% against major currencies. The Federal Open Market Committee minutes from July 25 meeting are going to be released Wednesday and will give clues on the course ahead for the interest rate hikes. The real remained to hover near USDBRL3.20. Cocoa futures fell 2.9% to $1,865 per ton. GCA inventories increased 118,367 bags during July.
A wave of weakness across the wider commodity complex spilt into London as outright values tracked negative momentum lower. Dollar strength signaled the arrival of short term selling back into the market as prices soon breached the 50 day moving average at $2092 basis Nov17. Commercial buying re-entered the market following a period of relative inactivity, although initially struggled to stem the negative momentum, as a fresh wave of technical selling returned following a move through last week’s low. The nearby structure confirmed the negative sentiment in London; Sep/Nov trading 5100 lots to weaken into $3 premium whilst the Nov/Jan weakened to $14 premium through 2700 lots. The move lower attracted good volumes of Sep17 based options, on both sides of the market, ahead of tomorrow’s option expiration. Technicians will now look to build on today’s convincing settlement in order to test the psychological $2000 barrier over the coming sessions. Arabica Coffee futures fell on Thursday, with the active December delivery contract falling 4.15 cents at 142.00 cents per pound. Prices were pressured by fundamental, sector, and technical factors. Volume reached 68,755, boosted by 19,422 switches, as the fund roll continues. The active U/Z settled at -355. Prices were initially pressured by the news from the IBGE revising their 2017-18 Brazil crop estimate up 1.5%, pegging total production at 47.2 million bags. Weakness in the Brazilian real against the US dollar prompted origin selling. The Brazilian real weakened to USDBRL3.17 against the US Dollar. System selling was noted along the soft commodity sector, with sugar falling 3%, cocoa 1.75%, and coffee 2.9%. From a technical standpoint, today’s reversal signal must be confirmed by breaking through the 20-day moving average, near today’s lows. A negative close tomorrow will register the first down week in six weeks, since reaching the lows of 115.50 in June 22nd.
London followed though from recent negative price action to close around nearby lows as short term buyers withdrew following recent weakness. The formation of an Evening Star reversal pattern over the course of this week saw many short term technical buyers back away as London held a negative trajectory through much of early trading. A move through yesterday’s low at $2120 basis September accentuated the move with a void of resting commercial support doing little to stem the negative momentum throughout the afternoon. Weakness in the nearby structure furthered the bearish sentiment with the Sep/Nov weakening into level money, the lowest values since early June. The mid-term low of $2069 remains as the short term target lower and technicians will target a settlement below this in order for negative momentum to continue into next week. Decent options volume traded with much of the attention focused around in the Nov17 strikes. The market will monitor the exposure around these strikes as well as further activity through September based strikes which expire on August 16th. Arabica coffee futures finished a slow session Wednesday with minor change. The benchmark contract for September delivery closed 10 points lower at 142.65 cents a pound. The OI decreased 4,480 as of August 08 to 205,335 lots. Volume was again boosted by switches. The nearby September – December switch narrowed to -3.45 cents. Coffee prices were under pressure early, due to weak real and the action of the previous day. However, reports from Brazil, indicating that some areas might be affected by the outbreak of the coffee borer provided some support to the prices. Friday’s September option expiration could keep prices within a tight range. Markets in general were slow reflecting the escalating tensions between US and North Korea. The dollar was volatile today, changing from positive to negative levels. Inflation data over the next couple days may provide some direction to the greenback.
Negative sentiment on the back of Robusta’s relatively poor close last night fed through into the opening period today as origin sellers offered the board into a relative vacuum. Spread weakness added to the feeling of general malaise with both Sep/Nov and Nov/Jan structures giving ground and by mid-session underlying support around $2115 was looking as if it could be threatened. It was only a mix of short-term spec interest and arbitrage related buying that ensured London did not fall too far too fast. Nevertheless, the action of the last few sessions does take on the shape of a reversal and until the price action is able to negate this (most likely with a convincing close above nearby resistance around 2175) buyers are likely to be a little more reticent than usual. Arabica coffee futures continued to advance Monday on spec short covering. A breaking of the recent highs encouraged the action. The benchmark contract for September delivery settled 190 points higher at 142.05 cents a pound. The volume increased considerably boosted by 13,962 switches, reflecting the beginning of the index fund roll period. Options related buying added support to the prices. Decent size of the 150 Calls, Sep and Dec was noted. A weak dollar gave support to markets and coffee prices. Market participants will focus on different speeches from the FED officials to have hints about the rate increase and the US policies. A firm real prevented domestics sale in the Brazil local market. The real ended at USDBRL3.1263 -54. The market in Colombia was closed on holiday.
With the US Commitment of Traders reports showing a larger than expected decline in the net fund short position, pre-market sentiment in London was decidedly bearish even if many thought any weakness would be short-lived. It was. Apart from a few lower prints on the opening the board held well. How a market takes news is important and Robusta’s strength was a cause for early shorts to cover. As the market cleared downtrend resistance around $2150, momentum swung in favour of the bulls and prices moved swiftly to re-engage the upside. Gains in New York only added to buyers confidence prompting a strong close towards the top end of the recent trading range $2100-2175. Arabica coffee futures closed lower Tuesday after market failed to surpass the previous highs. The most active contract for September delivery settled 140 points lower at 137.85 cents a pound. Volume reached 35,475 lots including 6,224 switches. The active nearby Sep-Dec switch finished at -3.60 cents. Activity began to be more significant with good buying interest under -3.75. The technical resistance against the 140-level stopped the recent rally. Speculative short-covering continued as showed by the open interest that as of yesterday decreased 2,663 lots to 215,119 lots, the lower level since June 20. In Brazil, the weather remained dry with temps in the 40s and 50s across the coffee belt. Truck drivers protesting a tax hike blocked roads to the main port of Santos. A weak dollar added support early in the morning, but bounced late. In the soft complex, the cocoa market reversed direction, closing sharply lower. Crude oil lost $1.00 to $49.26 per barrel.
Further long liquidation in the nearby structure combined with weakness in the ‘C’ contract saw values close lower in London for the fourth consecutive session. With commercial interest thin on both sides of the market, outright prices struggled to generate early momentum, content to hold around the near term averages at $2122 basis September. Short term long liquidation in New York following a failure to breach 140 dragged values in London lower, although once more remained supportive above $2100 which holds as nearby support. The Sep/Nov spread weakened further, trading into $5 premium through 3000 lots. The make-up of the structure will remain closely monitored by participants, having attracted the attention on the speculative community tracking momentum lower. Reasonable options volume traded with 500 lots of the Nov 2400/2000 fence trading at $25 with a 44% delta hedge at $2113. ICE Coffee Futures Settle at the Highest Levels Since May 3
Arabica coffee futures extended gains as spec short-covering continues. The contract with most of the activity for September delivery settled 140 points higher at 139.25 cents a pound. Volume was moderate with 27,557 lots traded, including 3,883 switches. The recent short-covering was evidenced by the open interest that declined 1,722 lots as of Friday. The OI has declined 9,311 lots since July 11. Last COT report showed that non-commercials reduced the net short position by 6,037 lots to 24,703; at the same time commercials adding 6,263 shorts for a net short position of 10,197 lots. During the month of July, Arabica coffee futures gained 10.75% or 13.30 cents. The market was helped by the decline of the dollar that completed five consecutive months of fall. During July the dollar index fell 3.3%. weakening inflation complicated the Federal Reserve interest rate policy. After last week announcement, the FED is less likely to increase rates this year. Recently reports of borer infestation in some areas Brazil added support to the coffee prices. In political news, the upcoming congress vote regarding the recent political scandal could bring volatility to the Brazilian currency. This week’s London COT report showed a 40 lot change in the Merchants net position over the reporting period, highlighting the lack of commercial activity at current levels. Most participants continue to eye a break away from the recent $2177/$2069 range in order for volatility to return to London, although short term support emerged around $2100 last week, becoming a target through the coming sessions. The Sep/Sep arbitrage maintained a lid on flat prices once more, as values widened through 42.50 cents following moderate strength in New York. The nearby structure further illustrates the short term weakness in London, with the Sep/Nov trading into $10 premium through 1800 lots. The July delivery contract went off the board with a further 505 tenders to leave final totals for the month standing at 7683 tenders and 4 re-tenders. Grading’s have picked up in London over the last couple of weeks with 533 lots shown to the board since July 17. |
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November 2018
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